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A mix of impairments, asset write-offs, contract disputes and inventory devaluations have torn apart auto equipment retailer Bapcor (ASX: BAP) today with its shares plunging 30.33 per cent, signifying a loss in market value of more than $500 million.
The revelation that three directors left the company yesterday probably didn't help either.
Despite delivering savings at the top end of a previously announced $20-30 million guidance, Bapcor - which owns the Autobarn and Autopro brands among others - surprised the market today with $48-50 million in significant items it expects will weigh down the bottom line for FY25.
The Melbourne-based company also reported that sales in May and June - its two largest trading months - were "disappointing relative to expectations".
"Significant work has been undertaken during the year to simplify the business which has disrupted trading especially in the Networks segment," says executive chair and chief executive officer Angus McKay, who was appointed to both roles in August last year.
"We have closed or moved more than 45 sites and consolidated multiple ERPs. These changes were disruptive but necessary as we strive to simplify operations to set us up into the future.
"The second half trading result was also impacted by the continued challenging Australian retail environment and economic conditions in New Zealand."
McKay says he is confident the business will return to sustainable growth, given its refreshed leadership team and business strategy in place, as well as the commencement foundational investment.
"Our focus for the upcoming year is to continue to simplify the business and drive better customer outcomes and growth," he says.
At the end of today's announcement Bapcor revealed that three of its seven directors - Mark Bernhard, Brad Soller and James Todd - tendered their resignations as directors following the close of trading yesterday. The company now plans to "accelerate" a board refresh process currently underway.
The group conducted a comprehensive review of its balance sheet in light of significant changes to the business during the year, unveiling a laundry list of problems.
The largest of these was a $10.8 million devaluation of inventory, followed by $7.5-8.5 million from changes to accounting estimates, and $6.5-7.5 million from estimated store-level impairment charges stemming from challenging operating conditions for some locations.
Bapcor is also reporting $6.9 million in asset write-offs that are mainly related to enterprise resource planning (ERP) systems and unused brand names, a $6.4 million charge for external receivables which are no longer deemed collectable, and a $3 million provision for commercial disputes that have either been settled or near-settled, as well as a current year warranty dispute in relation to a product recall.
On a post-tax basis the group expects a $24 million reduction to opening retained earnings for the financial year.
The group's market capitalisation is now worth $1.24 billion - well short of the $1.8 billion takeover offer from Bain Capital at $5.40 per share that Bapcor's board rejected just over a year ago, on the same day it announced McKay would be leading the business from August 2024.
The board claimed the offer did not represent fair value for Bapcor.
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